That is only fair. In my view the only action that will fundamentally and permanently right the ship is conversion to internal management, and I don't expect that to happen. But I am willing to wait to be proven wrong. That is only fair.

Two recent articles by BDC Buzz [1] [2] demonstrate how management fees contribute to FSC's poor performance. As long as FSC is externally managed, management's interest will not be aligned with owners' interest.

According to the latest 10-K, FSC pays a base management fee and an incentive fee.

The base management fee is 2% of gross assets less cash. This is an incentive for FSC to grow its assets for the sake of growth. There is no inherent benefit for owners from this strategy but it does put more and more cash in management's pockets while at the same time causes dividend cuts.

The incentive fee is based on NII and capital gains. The formula is complex and I refer you to the 10-K [3] for details.

I don't see any way for FSC to compete with MAIN as long as it is externally managed.

One rebalancing strategy that might avoid the problem of selling winners and buying losers is to allocate so that each position generates the same amount of dividend income on original cost. Time passes and now one of your positions is generating far more than its share of income. This can only happen if the dividend grows faster than the portfolio average. You can then decide if you want to rebalance. If you think the dividend growth rate is a sign of a healthy business and the dividend is sustainable, then you might decide do nothing. However, if the dividend is getting ahead of the business, such as a dangerously high payout ratio, you might decide to sell some or all of the position, and put the proceeds into some other position(s).

This type of allocation is not intended to perform in relation to any benchmark. It is intended to generate rising income, and with sufficient positions to defend against the catastrophic total loss of income when one position reduces its dividend or stops paying a dividend entirely.

Rebalancing this type of allocation could also be done by rote, but as six has pointed out, there does not seem to be much evidence that you would add alpha by doing this, but there is a guarantee of increased trading expenses.

I think you may be misreading the intent of this series. NOBL is being examined because it owns the Dividend Aristocrats. The DAs and the DA Index are the real subject. The technical discussion is this: if you want to own the DAs, and duplicate the DA Index, what is the least expensive way to do it?

We read many financial press reports and SA comments to the effect that REITs are a bond substitute. Your extract from the O fact sheet demonstrates the falsity of this belief.

Imagine if you had invested $10,000 each in O and IEF on Dec 31, 2004. If you had reinvested all distributions, today your O would be worth $35,184, and your IEF would be worth $17,080. If you had not reinvested, your total income from O would have been $6,394 and from IEF would have been $3,312.

I rate O at the top of my list of preferred dividend stocks, exceeded only by mighty MO.

The Challenge Of Managing An Income Portfolio In A Traditional IRA [View article]

FinancialDave,

I waffle on this very topic. Some days reinvestment sounds like the best plan, other days it does not. I have two TIRAs. In one I compromise by reinvesting the C corp dividends and the eREIT distributions, and not reinvesting the mREIT and ETN distribtutions (i.e. the high yield). In the other TIRA I do not DRiP. How's that for hedging my bets?